Fed Announces Plan to Buy $40 Billion Worth of Bonds per Month to Boost Economy

The Federal Reserve announced today that it would begin buying $40 billion worth of mortgage-backed securities on a monthly basis in order to boost the nation's lagging economy.

In a release, the Fed cited continued downward pressures on the economy, from both within the nation's borders and abroad, as their reason for instituting a new round of stimulus, which marks the first time since 2008 that the bank has made an open-ended commitment to buying government securities.

"Information received since the Federal Open Market Committee (FOMC) met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated," said the Fed. "The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook."

Furthermore, the Fed also decided to keep the target range for the federal funds rate at 0-0.25%, and currently anticipates that exceptionally low levels for the rate should be expected, and considered necessary, at least through the middle of 2015.

Along with the bank's decision to make $40 billion worth of bond purchases per month, the FOMC also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities back into agency mortgage-backed securities. Collectively, these two policies will increase the FOMC's holdings of longer-term securities by about $85 billion each month through the end of 2012.

"These actions should put downward pressure on longer-term interest rates, support mortgage markets and help to make broader financial conditions more accommodative," said the Fed.

- Jacob Barron, CICP, NACM staff writer

No comments:

Post a Comment